I began analyzing the financial markets in 1982 when I became the research director for a financial advisory firm and provided regular market analysis on stocks, commodities, currencies and mutual funds. I am a technical analyst. Much of my focus was on how obscure technical indicators or methods, could be applied to the financial markets and used as an effective trading tool. Many of the indicators I have used for years, such as Gerry Appell's MACD and Welles Wilder's RSI, have subsequently gained wide popularity.

This page is devoted to sharing my insights and techniques in order to help you become a smarter trader/investor. Over the past twenty years I have traveled around the world several times, visiting all of the major financial centers as he taught professional traders and money managers my approach to the financial markets.

My method of stock selection starts with a proprietary scanning method to select a group of individual stocks for more extensive analysis. This includes an in-depth study of the volume patterns that I use to determine the strength of a stock's trend. Those with the strongest trend, either up or down, are then further analyzed to determine entry, exit and risk levels. I use Fibonacci retracement, projection and extension analysis to determine both profit objectives as well as stops.

10/18/2012 @ 1:05PM1,031 views

Bulls Will Charge Before Elections

The growing focus on the election and the fiscal cliff have turned sentiment on the stock market more negative, but MoneyShow’s Tom Aspray says the market’s internal health is sending him a much different message.

The Dow Industrials was dragged down Wednesday by the 4.9% drop in IBM’s (IBM) stock. But once again the market was internally strong, as 2,071 stocks advanced but only 933 declined. Bullish overnight news on China’s economy has boosted the emerging markets, but US stock futures remain lower in early trading.

Even though the S&P 500 is only 1% below the September highs, sentiment on the stock market has turned more negative. Whether it is a panel of top CEOs, or regular Joes tracked by the American Association of Individual Investors (AAII), very few are looking for stocks to move higher.

This week’s survey from the AAII shows that only 28.6% are now bullish, while 44.6% are bearish. As the market has climbed, the individual investor has become more negative. On August 23, only 26% were bearish according to AAII.

Even the financial newsletter writers have started to change their tune: only 42.6% are bullish now, down from 54.2% in September.

In the coming weeks these numbers are likely to change, as the technical evidence reveals that the market is actually gaining strength. Let’s look at the evidence.

Click to Enlarge

Chart Analysis: The daily chart of the NYSE Composite shows that the flag or triangle formation (lines a and b) was completed with Wednesday’s close.

Unlike some of the other averages, the NYSE Composite held well above the August highs on the recent correction.

The 127.2% Fibonacci retracement target is at 8,631, which also coincides nicely with the upper parallel trading channel.

This upside target is just over 2% above Wednesday’s close

The price action has been confirmed by the NYSE Advance/Decline line, as it has moved above its previous high and the resistance (line c).

The A/D line did make new highs in September, confirming the price action, and it is once again close to making new highs.

There is initial support at 8,304. A much stronger level follows at 8,200.

The Spyder Trust (SPY) closed just below its trend line resistance (line e) at $146.60. Since the September highs, SPY appears to have traced out a typical continuation pattern, which often set up excellent trading opportunities.

On a close above the early October high at $147.16, the minimum upside target is $149.78, the 127.2% Fibonacci retracement target.

There are additional upside targets in the $152 to $153 area.

The S&P 500 A/D line has been lagging the price action over the past few months, but has just moved through its downtrend (line g).

It is positive that the previous highs have also been exceeded.

The good support for the A/D line was tested last week, as the daily price uptrend (line f) was tested.

There is minor support now at $145.30 to $145.60, with stronger levels at $144.40 to $144.80.

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